Collecting sales tax on Shopify starts in your admin panel under Settings > Taxes and duties, where you register each state or region where you have a tax obligation and let Shopify calculate rates automatically at checkout. The setup itself takes only a few minutes, but the real work is understanding where you need to collect, making sure your products are categorized correctly, and staying on top of filing. Here’s how to handle each piece.
Determine Where You Owe Tax
You’re only required to collect sales tax in states where you have “nexus,” which simply means a tax-relevant connection. Physical nexus comes from having inventory, employees, or an office in a state. Economic nexus kicks in when your sales into a state cross a dollar or transaction threshold set by that state’s law. Most states set their economic nexus threshold at $100,000 in sales or 200 transactions per year, though the exact numbers vary.
Shopify has a built-in tool that tracks this for you. Go to Settings > Taxes and duties, then select United States. Above your list of registered states, you’ll see a preview of your tax liabilities. Click into the Tax liability insights page for more detail. Each state will show one of two statuses:
- Action required means Shopify has identified a potential tax obligation, either because you have a location in that state or your sales have crossed the economic nexus threshold.
- Monitoring means your sales have reached at least 80% of a state’s threshold, so you’re approaching the line but haven’t crossed it yet.
One important limitation: Shopify can only track sales processed through its own checkout, including marketplace orders where required by state law. If you also sell on other platforms or in person through a separate system, those sales count toward nexus thresholds too but won’t appear in Shopify’s insights. You’ll need to account for those separately when deciding whether you’ve hit a state’s threshold.
Once you know you have nexus in a state, register for a sales tax permit with that state’s tax authority before you start collecting. Collecting sales tax without a permit is illegal in most states.
Turn On Tax Collection in Shopify
After you’ve registered with each relevant state, set up collection in your store. You only need to do this once per region:
- From your Shopify admin, go to Settings > Taxes and duties.
- In the “Manage sales tax collection” section, click your country or region.
- Click “Collect sales tax.”
- Enter your tax registration number. If you’ve applied but haven’t received it yet, you can leave this blank and add it later.
- Click “Collect tax.”
You can repeat these steps to add additional states or regions. Once activated, Shopify will automatically calculate and charge the correct sales tax rate at checkout for customers in those locations. The rates are pulled from Shopify’s tax engine, which accounts for state, county, and city-level taxes.
Categorize Your Products for Accurate Rates
Not everything is taxed the same way. Groceries, clothing, digital goods, and other product types may be exempt or taxed at reduced rates depending on the state. Shopify uses product categories to figure out which rules apply to each item you sell.
To set a product’s category, go to Products in your admin, click on the item, and find the Category section. Start typing your product type and select the most specific match from Shopify’s category list. You can drill down through subcategories to find the right fit. For example, if you sell t-shirts and categorize them as clothing, Shopify knows that certain states exempt clothing under a specific price point from sales tax and will adjust the calculation automatically. If tax rules change in the future, Shopify updates the calculation without you needing to do anything.
If you have a large catalog, you don’t need to edit products one at a time. Select multiple products from your product list, click “Bulk edit,” and add the Product category column if it’s not already visible. You can also import categories through a CSV file using Shopify’s Standard Product Taxonomy as a reference.
One thing to watch: if you’ve previously set up manual tax overrides on specific products or collections, those overrides take priority over the category-based calculations. If you’re switching to product categories, remove any conflicting overrides so the automated rates apply correctly.
Understand Shopify Tax Pricing
Shopify’s built-in tax engine, called Shopify Tax, is free for stores with up to $100,000 in global sales per calendar year. After you pass that threshold, Shopify charges a per-order fee on transactions where tax is collected:
- U.S. sales: 0.35% per order (0.25% on the Plus plan), capped at $0.99 per order
- U.K. and E.U. sales: 0.25% per order (0.15% on Plus), capped at $0.99 per order
Fees are also capped at $5,000 per region, per store annually, so costs don’t scale endlessly as your revenue grows. Shopify only charges these fees in states or countries where you’ve actually activated tax collection. If you sell into a state but haven’t turned on collection there, no fee applies for those orders.
These rates apply to stores making up to $100 million in annual sales. Above that level, pricing is negotiated directly with Shopify.
Use Shopify’s Tax Reports for Filing
Collecting the tax is only half the job. You also need to file returns and send the collected money to each state on a regular schedule, which could be monthly, quarterly, or annually depending on your sales volume in that state. The state assigns your filing frequency when you register.
Shopify generates detailed sales tax reports you can filter by state and jurisdiction, giving you the numbers you need to fill out each state’s return. Go to Settings > Taxes and duties to access these reports. The data breaks down taxable sales, exempt sales, and tax collected in a format that maps to what most state filing forms ask for.
Shopify also offers automated filing as part of Shopify Tax, which can handle submitting returns and remitting payments to states on your behalf. This can save significant time if you’re registered in many states, since each one has its own portal, form, and deadline.
Keep Tax Collection Current
Sales tax obligations aren’t static. As your business grows, you’ll cross nexus thresholds in new states. Check your Tax liability insights page regularly, especially the “Monitoring” states that are approaching the 80% mark. When a state flips to “Action required,” register for a permit in that state and activate collection in your Shopify settings.
If you stop selling into a state or close a physical location there, you may be able to deregister and stop collecting. Most states require you to file a final return and remit any remaining tax before closing your account. Don’t just turn off collection in Shopify without also notifying the state, or you could face penalties for unfiled returns.